Ecommerce bellwether Flipkart is not exactly in the pink of health as far as its profits go. The company has filed a total loss of Rs. 2,000 crores with the Registrar of Companies. The breakup is as follows: Flipkart Internet, which runs the website, has a loss of Rs. 1,096.4 crores, and Flipkart India, the wholesale wing, has a loss worth Rs. 836.5 crores. The figures have gone up from a total loss of Rs. 715 crores last year.
Heavy discounts the culprit
The company is trying to keep pace with its rivals, and the way to go is the discount factor. At the same time, Flipkart is pumping its resources to its back end activities to keep the engine going.
“Flipkart could post between 35-50% of its sales as operating loss due to its high logistics cost and discounting,” opines Ruchi Sally, director of Elargir Solutions, a retail consultancy. “The only way to reduce (this) is to diversify in higher-margin product categories such as apparel and home.” She continues.
The CEO of a retail group who wished to remain anonymous agrees and says, “The current model of Flipkart doesn’t make any economic sense as any company selling goods below manufacturing cost without any margin will always attract customers. But a sustainable business can’t run like this and Flipkart needs to look for alternate revenue models such as advertising and data selling to make money.”
Flipkart is already thinking on those lines with its plan to introduce native ads.
Sales looking good
The company’s sales figures have gone up by three times and stand at Rs. 10, 390 crores. Mukesh Bansal is optimistic about the growth of this figure, and estimates that it will grow by six times the current figure. Bansal predicts that the sales will stand at Rs. 65,000 crores in FY 2016.
Utilize resources prudently, say experts
Viju George of JP Morgan says, “Flush with cash, firms could so easily develop expensive habits such as embarking on costly and perhaps undifferentiated customer acquisition strategies and too quickly elevating their fixed-cost structures, which may be difficult to wind back when circumstances change.”
To translate, companies ought to be careful with their policies, and think long term before they make any strategic decision.